Crypto mistakes and how to avoid them

I know that we all say we’re “in it for the technology”, but what we really mean is that we’re all trying to get rich to buy Nicolas Cage’s T-rex skull or that fancy imported ramen.

For this reason, many of us have gotten a little bold with our market moves. Maybe a little more so than what we might attempt with our other financial investments. What are some mistakes that we can avoid?

• Ignoring risk management
  • The volatility of the crypto market is rife with risk and we, as investors, need to set our own levels of risk management. This can be like setting stop losses, paper trading to test the waters, and making an investment plan.
• Day trading
  • The allure of fast cash is drawing many people into essentially day trading cryptos. This is not inherently bad, but it should be approached with some knowledge before jumping right in. Too many trading pairs, ignoring risk-reward, not calculating fees, forgetting the tax-man, and other mistakes can be avoided with some cursory research and a bit of practice.
• Trading futures / options / margins / leverage
  • If you see any of these terms and you don’t know what they are… run. In these types of trading you are guessing what the price of crypto will be in the future and even borrowing money to do it! Sounds silly? It is. Sorry, did I say silly? I meant very, very risky. I’m not saying that it can’t be done, just know that your entire investment can be liquidated in seconds. Ouch.
• Ignoring fees
  • Fees are an important part of some cryptocurrencies, such as Bitcoin and Ethereum. Fees are paid to miners who are completing blocks on the blockchain so that your precious transaction can be recorded on the ledger and sent through. It’s essential to understand the fee structure of a certain cryptocurrency before buying it and making multiple transactions that could burn through your profits in an instant.
  • Withdrawal fees on exchanges are another hit to the wallet. Be sure that you read the policies and fee rates for your particular exchange and coin so that you understand how much you need to allocate just to move your bags.
• Forgetting taxes
  • There are 2 constants in life: death and taxes. All those trades that you are making as you buy and sell are taxable events in the USA. Your country may have different tax laws that you should absolutely understand before getting too deep into crypto. Get to know what capital gains taxes are and set aside some of those profits for paying the government’s share.
• FOMO / emotions
  • With so much content being beamed into our eyes at all hours of the day, it’s hard to avoid being influenced by this information. Trading and investing with emotion can lead to many avoidable mistakes. It’s important to recognize things like fear, greed, doubt, elation and other pesky feelings that are trying to separate you from your profits. Stuff those down, deep inside, with those memories of when you wet your pants.
• Not taking profits
  • You’ve already admitted at this point that you’re in it for the money. So why is it so hard to take profits? Everyone has heard about the incredibly low prices of Bitcoin 10 years ago and is hoping that if they just hold that they can become millionaires. Possibly, or something else can happen like a massive crash or a boating accident. Billions of dollars in crypto are simply lost every year. Take some before it affects you. Use the profits to buy back in when the price drops.
• Not having a plan
  • “I should have bought XXX when it was $$$!” Maybe you should have, but was it part of your plan? It’s important to understand a few things about an investment that you’re interested in:
    • Capital to invest
    • Entry and exit points
    • Acceptable losses
  • If you’re going to use a dollar cost averaging strategy to invest capital into the crypto, you may want to use the same strategy to take profits out. Doing this at certain time intervals can help reduce the effects of the volatility in price.
• Not checking address / memo
  • Transactions with large amounts of money can be scary. You’re trusting that your funds will make it to the other side. Make this less intimidating by checking the address carefully, even if you copy and pasted it. You may also want to send a small test transfer to ensure that the process is working as intended. Finally, some assets require that you include a memo before sending. I found that out the hard way.
• Investing more than you are willing to lose
  • Don't believe for a second that you're in control of yourself or the market. Many people have dumped their hard-earned money or life savings into crypto hoping to get lambos and castles. Stick with your plan and allocate only the capital that you’re willing to lose. A downswing in the market shouldn’t decide whether or not you’re able to eat this week.
• Not holding your own keys
  • Have a safe store for your earnings. Maybe you don’t want to take fiat profit in your coins just yet and want to hold them. At this point you can take some off the exchange and into a noncustodial software or hardware wallet, meaning that you own the keys instead of a third party.
• Not reading the fine print
  • Bought crypto on an exchange only to learn that you couldn't withdraw it to your own personal wallets? Should have read the fine print. Now you have to pay the fees to transfer back to fiat and you’ve wasted your time.
• Not making passive income
  • There are so many ways to make passive income in this space from shitposting on r/cc, to staking, to joining liquidity pools, loaning out crypto and other creative methods. There is no reason why you shouldn’t let your money work for you. Any rewards made from these ventures can then be compounded and increase earning potential. Don’t sleep on this.

Don’t let the mistakes of those that came before you be in vain. Know what you’re getting into, make a plan, and avoid the stress and emotion of being ill-prepared.

Intelligence is the ability to learn from your mistakes. Wisdom is the ability to learn from the mistakes of others.